This paper addresses the open debate about the usefulness of high-frequency (HF) data in large-scale portfolio allocation. Daily covariances are estimated based on HF data of the S&P 500 universe employing a blocked realized kernel estimator. We propose forecasting covariance matrices using a...

Low probability events are overweighted in the pricing of out-of-the-money index puts and single stock calls. We find that this behavioral bias is strongly time-varying, linked to equity market sentiment, and higher moments of the risk-neutral density. An implied volatility (IV) sentiment...

Why do banks issue contingent convertible debt? To answer this question we study comprehensive data covering all issues by publicly traded banks in Europe of contingent convertible bonds (CoCos) that count as additional tier 1 capital (AT1). We find that banks with lower asset volatility are...

Retail investors pay over twice as much attention to local companies than non-local ones, based on Google searches. News volume and volatility amplify this attention gap. Attention appears causally related to perceived proximity: first, acquisition by a nonlocal company is associated with less...

Using the pandemic as a laboratory, we show that asset markets assign a time- varying price to firms' disaster risk exposure. In 2020 the cross-section of realized and expected stock returns reflected firms' different exposure to the pandemic, as measured by their vulnerability to social...

We propose a model with mean-variance foreign investors who exhibit a convex disutility associated to brown bond holdings. The model predicts that bond green premia should be smaller in economies with a closer financial account and highly volatile exchange rates. This happens because foreign...

From 1963 through 2015, idiosyncratic risk (IR) is high when market risk (MR) is high. We show that the positive relation between IR and MR is highly stable through time and is robust across exchanges, firm size, liquidity, and market-to-book groupings. Though stock liquidity affects the...

We test whether asymmetric preferences for losses versus gains as in Ang, Chen, and Xing (2006) also affect the pricing of cash flow versus discount rate news as in Campbell and Vuolteenaho (2004). We construct a new four-fold beta decomposition, distinguishing cash flow and discount rate betas...

Deviations from normality in financial return series have led to the development of alternative portfolio selection models. One such model is the downside risk model, whereby the investor maximizes his return given a downside risk constraint. In this paper we empirically observe the...

This paper investigates the determinants of value and growth investing in a large administrative panel of Swedish residents over the 1999-2007 period. We document strong relationships between a household's portfolio tilt and the household's financial and demographic characteristics. Value...